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Congress is poised to pass federal economic stimulus legislation, merging the bills that emerged from the US House of Representatives and the US Senate. States are poised to receive significant federal funding in an effort to put people back to work and stabilize the sinking housing market as the first steps in a process toward economic recovery. Government has to be smart about how it uses our money. The stimulus package alone will not be enough to put everyone who needs a job back to work and it will not be enough to make sure every family has a safe place to live. But if it is allocated wisely and fairly, it can be a powerful boost to the economy and help fix the damage done to our housing system. To do that, states must ensure that those in the most need benefit from stimulus. While we have made much progress on race and gender equality in this country, we have not yet achieved full fairness, and these inequities limit prosperity for all of us. Targeting stimulus funds to communities in need is not only the fair thing to do, it is the effective thing to do. Considerable research, by Professor Manuel Pastor and others, shows that investing in equity builds the regional economy and helps everyone.
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A Racial Equity Lesson
The nation’s financial crisis was jump-started by the mortgage crisis. There is an important lesson to be learned from looking at the origins of the crisis in racial exclusion from fair lending opportunities.
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National research has shown that up to 35% of those with subprime loans could have qualified for normal, prime mortgages.
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Blacks and Latinos are much more likely to have sub-prime mortgages than their White counterparts even when they have the same income.
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In fact, there is a
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sub-prime-prime gap between Blacks and Whites at higher income levels.
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Because of usurious loans, Black and Latino communities are much more unstable in the current crisis than White communities, facing higher foreclosure rates as well as the ripple effects of this crisis – higher unemployment rates, lower wages, fewer assets and greater health care related stresses.
Center for Social Inclusion
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If we had paid attention to the most distressed communities, we would have identified some problems that needed correcting for all mortgage seekers and possibly averted the financial crisis we now face. The good news is we can learn from this mistake. With the economic stimulus package, we have the opportunity to adopt policies of inclusion and prosperity for all. Several key principles can help achieve that goal:
1. Stimulus money must address the housing crisis by alleviating foreclosures, developing truly affordable housing for those most in need, and connecting low-cost housing to opportunity infrastructure such as public transportation, jobs, and good schools.
Affordable housing is disappearing across the country. For many, incomes are just not keeping up with the increasing cost of rent or mortgage payments. The foreclosure crisis, the central cause of the current recession, is stripping wealth from every community, but especially communities of color. Additionally, waves of foreclosures are pushing homeownership further out of reach for many and destabilizing communities as tax revenues shrink and public services, such as education, struggle to stay fiscally solvent.
Stimulus spending can stem foreclosures, rehabilitate already-lost properties, and build housing opportunity through strategic use of the Neighborhood Stabilization Program.
The Neighborhood Stabilization Program (NSP) is authorized by Title III of the Housing and Economic Recovery Act of 2008. NSP offers grants to states and certain smaller municipalities to buy and redevelop foreclosed properties. Granted funds must be used as part of a comprehensive plan for revitalization or redevelopment of the sites for affordable housing. Funding decisions prioritize areas with the greatest percentage of current and expected foreclosures, the greatest percentage of homes financed with subprime mortgages, and the greatest amount of vacancies. Guidelines state that funds benefit households below 120% of the local Area Median Income (AMI). Additionally, 25% of funds must assist households that have no more than 50% of AMI. Rehabilitating foreclosed homes is an important goal, but state implementation of NSP can improve on the original goals:
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AMI is an inappropriate standard from which to determine affordability. For example, AMI for New York City is $74,600, but 68% of households earn less than this.
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Furthermore, those most likely to be in foreclosure almost certainly have even lower incomes. By relying on AMI to decide affordability, NSP could result in further pulling housing opportunity away from economically-distressed households. NSP should use a smaller geographic area than that used in AMI to determine affordability.
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To get at the root cause of the problem, NSP needs to dedicate more money towards stopping foreclosures, rather than addressing already-foreclosed homes. Foreclosure
activity was up a distressing 81% in 2008.
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If NSP does not get in front of this trend, we will be unable to deal with the consequences.
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Program funds should be linked to programs that ensure that people who have lost homes in foreclosure have the opportunity to buy homes they can afford at interest rates that are reasonable.
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In addition to already-existing criteria, NSP should prioritize saving and rehabilitating housing located near other opportunity structures – jobs, public transit, good schools, etc.
2. Stimulus money should focus on building homeownership opportunities for the poor and other disadvantaged communities.
Homeownership built the middle class, and home equity accounts for the majority of asset wealth of the typical middle class family. In addition to making families more financially stable, homeownership makes communities more stable by securing residents and establishing tax revenue. Unfortunately, not everyone has the same access to homeownership. Because of historic and present-day discrimination and exclusion, people of color have significantly lower homeownership rates than Whites. Unfair lending practices, at the heart of the current crisis, have pushed the dream of homeownership further out of reach for many people of color. For example, Black and Latino mortgage seekers earning over $350,000 per year were more likely to be offered a subprime loan than White mortgage seekers earning under $50,000 per year.
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States should ensure that lower-income people can take advantage of low home prices and the home tax credit to become homeowners and get on the road to asset development.
The stimulus legislation includes a tax credit for homebuyers buying a primary residence. As many as 1 million home sales could result from the tax credit, according to Mary Trupo of the National Association of Realtors. Unfortunately, not all homebuyers will benefit equally. To take full advantage of the credit, buyers would have to earn enough to use it and spend at least $150,000 on a home.
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The National Low Income Housing Coalition points out that, since the money comes as a deductible tax credit, homebuyers must earn enough to pay taxes to get any benefit and as much as $81,900 per year for a family of four to get the full benefit. However, the median income for a Black or Latino family was only $40,000 in 2007. Additionally, when the home costs less than $150,000 the deduction is only worth 10% of the house's value, meaning that those buying the cheapest homes wouldn't receive the full benefit.
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Lower-income families could be given an opportunity to buy homes if government finds creative ways to use CDBG funds to support their access to homeownership opportunities.